Coordination on Formal vs. de facto Standards: A Dynamic Approach

Abstract

Formal standards arise out of deliberations of standards-writing organizations, while de facto standards result from unfettered market processes. Therefore, the formers are of a higher quality and legitimacy, but are slower to develop than the latters. To address this trade-off, we analyze a dynamic game where two players choose between one evolving formal standard and one mature de facto standard. The outcome of the game relies on the coordination mechanism used by the players, on the relative value they attach to successful coordination, and on the formal standard's performance at the end of the game.Standardization, Negotiation, Bandwagon